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Location: Is it going to be in the school gym for which you will have to spend no money, or at a location that you have to pay to rent?Music: Are you going to hire a band which will make you spend more or hire a DJ for which you will have to spend less?Refreshments: Do you want to just have chips and soda, or do you want something more elegant such as bruschetta?No matter what your choice is, everything has a cost. It may not be a monetary cost, but there is a cost which we will talk about later.

After the first bullet point:In plain English, economics is the study of how people try to get everything they want by using a limited amount of resources.

After the first bullet point:Cost is what has to be given up to get something else.In our example about the prom committee from the beginning of the chapter, using the gym has no monetary cost but it does have a cost. The cost is a nicer location with air conditioning. If you chose to rent a place for the prom, the cost would be both the money and the convenience of being able to decorate at your leisure.The cost of a live band is the range of music to be played and the money.The cost of a DJ is the experience and ambiance provided by a live band. The cost of chips and soda is that it is boring and not memorable or special.The cost of more elegant refreshments is the money and ease of setting it up.

After the second bullet point:We must remember that economists and economics in general are concerned with the economic impact of decisions only, not the moral or social impact.

After fourth bullet:If items are less expensive more people can afford them.After fifth bullet:If people have more money to spend, they will buy more.

After second bullet:Land includes deserts, fields, forests, mineral deposits, livestock, climate, and even sunshine.

For example, a factory is Capital, but at one time concrete, mortar, steel, iron, etc. were the capital in the production of that factory which was at that time, a good.

You will sometimes hear another word associated with labor and that is workforce.

After second bullet:So an entrepreneur could be someone who starts a business, like a restaurant, or someone who invents something, like the pet rock.

After first bullet:If land, or natural resources were missing, you would have no where to produce goods or services.If capital was missing, you wouldn’t have the tools or equipment for production of goods or services.If labor was missing, you would have no people to work in the production of goods or services.If entrepreneurs were missing, you would have no one to organize and create from the factors of production meaning no businesses or services would exist.

After second bullet:It is important to note that the GDP only covers dollar value produced within a country’s borders. The GNP (Gross National Product) covers the domestic and international production (value by ownership).Top 10 GDP by country for 2010:United States – $14.6 trillionChina – $5.9 trillionsJapan – $5.5 trillionGermany – $3.3 trillionFrance – $2.5 trillionUnited Kingdom – $2.2 trillionBrazil – $2.08 trillionItaly – $2.05 trillionIndia – $1.7 trillionCanada – $1.5 trillion

After first bullet:A market is a location or other mechanism that allows buyers and sellers to exchange a specific product.

Individuals contribute land, labor, capital, and entrepreneurs to factor markets in return for income and wages.Consumer spending drives the product markets for goods and services.Businesses purchase productive resources from the factor markets.Resources purchased are used to produce goods and services to the product markets in exchange for business income.We can see that the factors of production and the products made from them flow in one direction in this chart while the money consumers spend on goods and services flows in the opposite direction.

How do individuals invest in human capital?They can invest in their own education by attending better schools, trade/technical schools, or colleges/universities.The norm has been that the higher degree you earn, the more money you earn. Right now, the economy is at the point that trade and technical schools prepare you for a career right away where a degree from a four year college or university does not. Employers right now are looking for people with experience which you don’t necessarily get in college.

For example, the assembly of a product may be broken down into some number of specific tasks (the division of labor), then each worker can perform the specific task he or she does best (specialization).

The factors that lead to economic growth are:ProductivityHuman capitalDivision of laborSpecializationEconomic interdependence

Chapter 1 - Econ

1.
Chapter 1: What is Economics?

2.
 Why is economics important? Why does it matter? It matters because every decision you make has some impact and most decisions have an economic impact. For example, assume you have been chosen to head a committee to organize the prom. What are some decisions you would have to make? Location, music – live or DJ, refreshments, etc.

3.
 As we go through this section, complete a bubble graphic that lists and describes the 3 economic choices every society must make. Also, answer the following questions: What is the difference between a need and a want? What would happen if one of the factors of production was missing? Why is economics considered to be a social science?

4.
 What is the fundamental economic problem facing all societies? Scarcity – The condition that results from society not having enough resources to produce all the things people would like to have. Resources – Things used to produce goods or services

5.
 Economics – the study of how people try to satisfy seemingly unlimited and competing wants through the careful use of relatively scarce resources. We often hear economists discuss wants and needs. * Need – basic requirement for survival * Want – something we would like to have but do not need to survive

6.
 Due to resources being limited, EVERYTHING has a cost (be it monetary or not) Economists use the term TINSTAAFL to describe this idea. TINSTAAFL – There Is No Such Thing As A Free Lunch Scarcity makes us answer 3 basic questions: What, How, and For Whom to produce.

7.
 What to Produce? A society must decide the most important things to produce. There is no right or wrong answer, simply a choice that must be made. Military vs. Housing If Housing is the choice, should it be low- income, mid-income, or high-income housing, etc.

8.
 How to Produce? The production method chosen leads to other economic issues. Automated Production vs. Manual Production Automated is cheaper, which lowers costs and makes items less expensive. Manual creates jobs, which gives people more money to spend.

9.
 For Whom to Produce? After the What and How questions are answered, we must answer the above question. If Housing was the What and the How was very expensive, the answer to For Whom the houses were built would be the high-income rich as opposed to the mid or low-income.

10.
 The 4 Factors of Production – resources required to produce the things we want: Land, Capital, Labor, and Entrepreneurs. Land – In economics, refers to natural resources not created by people. Land is thought of by economists as fixed, or in limited supply, due to there being a finite amount of natural resources at any time.

11.
 Capital (aka Capital Goods) – tools, equipment, and factories used in the production of goods and services. Capital is unique because it is the result of production. That means that what is now capital was once the product of capital.

12.
 Labor – people together with all of their abilities, efforts, and skills. Birthrates, immigration, famine, war, and disease have an impact on both the quality and the quantity of labor. The only group of people left out of this category is entrepreneurs because of their distinct role in the economy.

13.
 Entrepreneurs – risk-taking individuals in search of profits. They are not included in labor because they are the people who are responsible for change in the economy with their innovations. They bring new products to market and start new businesses with existing resources. This makes them a driving force in the economy.

14.
 *If one of the factors of production were missing, production would not take place. *Economics is also a social science because it deals with the behavior of people as they deal with scarcity or scarce resources. The 4 elements of Economics: Description, Analysis, Explanation, and Prediction.

15.
 One part of Economics is Description – describing economic activity. Gross Domestic Product (GDP) – dollar value of all final goods, services, and structures produced within a country’s borders in a 12- month period. It is the most comprehensive measure of a nation’s output and economic health.

16.
 Economics also describes jobs, pricing, trade, taxes, and government spending. Analysis – Economics analyzes the economic activity which it describes. EX. Why do some people make more money than others? Analysis helps us learn why things work and how things happen, which helps us solve problems.

17.
 Explanation – the communication to others of the knowledge received through analyzing a problem. If there is a common understanding of how the economy works, then we will be more prepared for future problems and they will be more-readily fixed.

18.
 Prediction – predicting what may happen in the future, including the most likely effects of different actions. Economics is the study of both what IS happening and what TENDS TO happen. It is important to realize that good economic choices are the responsibility of all citizens in a free and democratic society.

19.
 What is the difference between a need and a want? A need is necessary for survival, a want is not. What would happen if one of the factors of production was missing? Production would not take place. Why is economics considered to be a social science? It deals with the behavior of people.

21.
 As we go through the section, in a bubble graphic, write and define the factors that lead to economic growth and define economic growth. Also, answer the following questions: How are goods, services, and consumers related? How are value and utility related?

22.
 Economic Products – goods or services that are useful, relatively scarce, and transferrable to others. Economic products help satisfy our wants and our needs. Since they are both useful and scarce, they command a price. There are two types of economic products: Goods and Services

23.
 Goods – useful, tangible items that satisfy a want. Examples include books, cars, Blu Ray players, etc. Capital Goods (Capital) - Goods that are used to produce other goods. Consumer Goods - Goods that are intended for final use by individuals. Durable Goods – Goods that last 3 or more years when used regularly.

24.
 Nondurable Goods – Goods that last less than 3 years when used regularly. Examples of Durable Goods include: cars, factory machines, etc. Examples of Nondurable Goods include: food, paper, clothing, etc. Is a computer a durable or nondurable good? Is a television a durable or nondurable good?

25.
 Services – work that is performed for someone. Examples include haircuts, home repairs, police, lawyers, doctors, teachers, etc. Goods vs. Services – Goods are tangible, Services are not. * Consumers – people who use goods and services to satisfy wants and needs. Value – in Economics is monetary worth of a good or service as determined by the market

26.
 Paradox of Value – phrase coined by Adam Smith, a Scottish social philosopher, in 1776 to describe the apparent contradiction between the very low monetary value of some necessities and the very high monetary value of some non-necessities. Scarcity is necessary for something to have value, but so is utility. Utility – ability or capacity of a good or service to be useful and give satisfaction to someone.

27.
 Utility is not fixed or even measurable, like height or weight. In fact, it varies from person to person. Examples: Computers, Rock Concerts, Blu Ray players, etc. The emphasis on monetary value is important to Economists. The value of something in terms of dollars and cents is a concept that is easily understood. * For something to have value, it must have utility.

28.
 Wealth – the accumulation of products that are tangible, scarce, useful, and transferable from one person to another. A nation’s wealth is comprised of all tangible items that can be exchanged. Examples: land, factories, stores, houses, theaters, clothing, books, even roads, video games, sports equipment (basketballs, footballs, etc.) Services are not included because they are intangible.

29.
 The wealth an economy generates is possible due to the circular flow of economic activity. Factor markets – where the factors of production are bought and sold. You participate in the factor market when you work and sell your labor to an employer. Product markets – where producers sell their goods and services. You participate in the product market when you buy goods or services.

31.
 Economic growth occurs when a nation’s total output of goods and services increases over time. * Productivity is the most important factor contributing to economic growth. Productivity – a measure of the amount of goods and services produced with a given amount of resources in a specific period of time.

32.
 * A major contribution to productivity comes from investments in human capital. Human Capital – the sum of people’s skills, abilities, health, knowledge, and motivation. Governments invest in human capital by providing public education and, now, health care. Businesses do so by providing training programs to their employees.

33.
 * Division of Labor – a way of organizing work so that each individual worker completes a separate part of the work. * Specialization – takes place when factors of production perform only tasks they can do better or more efficiently than others. The division of labor makes specialization possible.

34.
 Henry Ford’s use of the assembly line is a great example of the advantages of division of labor and specialization. By using the assembly line, he cut the assembly time of a car from a day and a half to just over 90 minutes (an hour and a half). This reduced the price of a new car by more than 50%.

35.
 * Economic Interdependence means that we rely on others and others rely on us to provide most of the goods and services we consume. The Circular Flow Diagram of Economic Activity that we looked at earlier online shows the high degree of economic interdependence in our economy. The gains in productivity and income that come from specialization almost always offset the costs associated with losing self-sufficiency.

36.
 How are goods, services, and consumers related? Consumers use goods and services to satisfy their wants and needs. How are value and utility related? For something to have value, it must have utility.

38.
 As we go through this section, answer the following questions: How are trade-offs and opportunity cost related? How does cost-benefit analysis help make economic decisions?

39.
 Trade-offs – alternative choices to the ones we make Cost means more than the price tag on a good or service. Opportunity Cost – the cost of the next-best alternative * Trade-offs are all other alternatives while opportunity cost is the next-best alternative.

40.
 The Production Possibilities Frontier – a diagram representing various combinations of goods and services an economy can produce when all its resources are in use. Economists are concerned with strategies that will help people make the best choices. Two primary strategies used are building models and preparing a cost-benefit analysis.

41.
 Economic Model – a simplified equation, graph, or figure showing how something works. “The Circular Flow of Economic Activity” chart that we looked at in the last section is an example of an economic model. It is important to note that models can be revised to make them better.

42.
 Most economic decisions can be evaluated with cost-benefit analysis. Cost-Benefit Analysis – a way of comparing the costs of an action to the benefits received. For example, suppose that you like choices A and B equally; if choice B costs less and gives you equal satisfaction, then B is the better choice because you get more satisfaction per dollar spent.

43.
 * Cost-benefit analysis reveals the choice with the lowest cost and the highest benefits. Economics is also the study of how things are made, bought, sold, and used. This helps to understand the workings of a free enterprise economy (one in which consumers and privately owned businesses, rather than the government, make the majority of the What, How, and For Whom decisions).

44.
 Topics (like economic incentives, laws of supply and demand, price system, economic institutions, poverty rights, unemployment, the business cycle, inflation, economic growth, and the roles of business, labor, and government in the U.S. economy) contribute to our standard of living. Standard of Living – the quality of life based on the ownership of the necessities and luxuries that make life easier.

45.
 How are trade-offs and opportunity cost related? Trade-offs are all other alternatives while opportunity cost is the next-best alternative. How does cost-benefit analysis help make economic decisions? Cost-benefit analysis reveals the choice with the lowest cost and the highest benefits.